How far can Carvana slide before it sinks?
It must have seemed like such a good idea back in 2015: a towering glass “coin operated” vending machine for cars.
That’s when Carvana’s first one was built in Nashville, Tennessee, and it was followed by 31 more as the Tempe, Arizona company, along with often wacky advertising which included a Super Bowl ad in 2022, tried to establish in the minds of consumers that buying a car could be fun at best, and at worst, less stressful.
No trudging through dealer lots, no sitting down and haggling with salespeople, no dealing with anonymous Craigslist ads. It was possible to get a deal on a good car without having to test-drive it, and Carvana would deliver it to your driveway. Even better, it would buy your trade-in and pick that up, too!
The idea took off. The company went public in 2017. In 2020, Carvana sold 244,111 vehicles, with an annual revenue of $5.587 billion, making it the second largest online used-car retailer in the U.S. By August 2021, Carvana’s often next-day delivery was available in 300-plus markets. It was one of the few companies that benefitted from the pandemic—it offered no-touch pickup and delivery.
Then, Carvana was hit with what Bloomberg called “a perfect storm.”
Demand for used cars “had seen a massive surge during the pandemic days, as auto production suffered from crippling supply shortages and used car prices soared. As supply chains began to normalize [in 2022], used vehicle prices have fallen sharply from their peak, squeezing margins at dealers like Carvana. Meanwhile, persistently high inflation and rising interest rates have discouraged consumers from making big purchases, especially in the face of a possible recession,” Bloomberg noted.
Just as serious is the $8 billion in debt the company is carrying as of the end of September, up from $5.8 billion at the end of 2021. Four thousand employees have been laid off.
What all this has done to the stock value is brutal. A year ago, it was $274.35 a share, down from a high of $360. Monday afternoon, on December 5, it was $7.16.
Add to that legal problems the company has had in states including Michigan, North Carolina, Illinois, and Pennsylvania. Stack on top the harmful publicity from news stories like one in Barron’s last June, titled “Carvana sought to disrupt auto sales. What it delivered were undrivable cars.” It dealt with Carvana’s repeated failure to title cars in the new owners’ names.
What, then, is to become of Carvana?
“Right around this time last year, I think a number of things started to break against us, and it’s definitely been much tougher sledding since then,” CEO Ernie Garcia acknowledged in a video teleconference with Automotive News last month during Used Car Week in San Diego.
Post pandemic, “We’re now back to a place where we’ve spent most of our lives, and I think, honestly, it’s a comfortable place to be,” Garcia said. “I think it’s what we’re used to, and it’s sort of easier to stay focused and build, and it’s easier to get motivated when people don’t believe in you than when people do.”
Motivation, then, should be no problem for Garcia and Carvana as the market decides the company’s fate.
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